Reuters reports a Belorussian official as saying that Naftan refinery in Polotsk, North-East Belorussia was receiving full volumes of Russian oil through the section of the Druzhba pipeline that continues to Lithuania and supplies Mazeikiu refinery.
Our view: The news indicates to us that the stop in supply of Mazeikiu was a political decision. Since Naftan refinery is after the Russian section of the pipeline where Transneft reported the leakage, the “technical failure scenario” could be ruled out. Although Mazeikiu CEO told the press that his company is ready to purchase crude oil via the seaport of Butigne, such a move would cut deep into profits of Mazeikiu.
It seems to us that a long debate could start between Poland and Russia, which could highlight PKN’s sensitivity on politics and could keep the share price depressed for long.